There's some commentary this morning about an effective monopoly keeping rates high here after Draghi's appearance in front of Oireachtas committee.
However, some coverage from Goodbody where they've included estimated ROE figures here vs elsewhere. The output of what I tried to explain above (emphasis added by me).
"Mr Draghi’s references in relation to competition is likely to keep investors nervous
about mortgage rates for the Irish banks. Having said that, from what we can see
in the media commentary this morning, he made no references to the fact Irish
mortgage RWAs at c.40-50% (even on IRB, post TRIM) are 3x Spanish, French
Benelux & German levels, 3-4x UK levels and 6-8x Scandinavian levels. Even when
NPEs reduce to average levels, the legacy of high LGD and PD inputs will keep RWA
in models elevated in Ireland, relevant for pricing. Also, Irish mortgages don’t
attract upfront fees and there is an elongated period for access to collateral on
repossession in Ireland. We estimate that ROEs on new business for the Irish
banks are 13-20% on new business if cashback offers are amortised over the
effective life of the mortgage (9 years), but c.1.5-2ppts lower if over the fixed rate
term (say 5 years). If you ran the numbers on the UK or Scandinavia or Spain,
you’d get higher numbers. For example, in Scandinavia, a 1.25-1.50% mortgage
rate on a 10% RWA with a 40% cost/income ratio and 10bps credit charge delivers
30-40% ROEs. Mr Draghi, stop comparing apples with oranges!"
[broken link removed]
However, some coverage from Goodbody where they've included estimated ROE figures here vs elsewhere. The output of what I tried to explain above (emphasis added by me).
"Mr Draghi’s references in relation to competition is likely to keep investors nervous
about mortgage rates for the Irish banks. Having said that, from what we can see
in the media commentary this morning, he made no references to the fact Irish
mortgage RWAs at c.40-50% (even on IRB, post TRIM) are 3x Spanish, French
Benelux & German levels, 3-4x UK levels and 6-8x Scandinavian levels. Even when
NPEs reduce to average levels, the legacy of high LGD and PD inputs will keep RWA
in models elevated in Ireland, relevant for pricing. Also, Irish mortgages don’t
attract upfront fees and there is an elongated period for access to collateral on
repossession in Ireland. We estimate that ROEs on new business for the Irish
banks are 13-20% on new business if cashback offers are amortised over the
effective life of the mortgage (9 years), but c.1.5-2ppts lower if over the fixed rate
term (say 5 years). If you ran the numbers on the UK or Scandinavia or Spain,
you’d get higher numbers. For example, in Scandinavia, a 1.25-1.50% mortgage
rate on a 10% RWA with a 40% cost/income ratio and 10bps credit charge delivers
30-40% ROEs. Mr Draghi, stop comparing apples with oranges!"
[broken link removed]
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